Exit policy for highway projects hits hurdle

NEW DELHI: The exit policy for highway projects announced in July in a bid to release the much-needed equity into the sector, has hit a fresh hurdle with the department for economic affairs ( DEA) saying the policy, which was being reworked by the highways ministry to make it more palatable to investors, doesn’t need any tweaking.

As per the policy by the National Highway Authority of India (NHAI), concessionaires could be substituted after approval from lenders and a new special purpose vehicle ( SPV) would be formed to take over the project.

However, despite an initial burst of interest, no developer had come forward citing lack of clarity over passing of tax benefits, licences, permits and so on from the old SPV to the new entity that would be formed when one developer exits the project and another steps in. The highways ministry had then worked on a fresh proposal suggesting that the policy be tweaked to say that there would be transfer of equity instead of a substitution of SPVs, which officials said, the department for economic affairs had initially agreed to. NHAI is now working on its response that will be sent to the DEA soon.

“There seems to be some misunderstanding on the issue. The DEA is now saying that the substitution is within the SPV itself whereas, as per the policy notified, there will be a substitution of SPVs. When a new SPV is formed, fresh licences, permits, stamp duties and so on are required, that’s why it was suggested that it be changed to substitution of shareholders instead an equity sale,” said an official aware of the development, adding that the National Highway Authority of India is now drafting a reply to DEA which explains why the modification is necessary.

Highway projects in India have been struggling to either take off or get any bids in the past few years. Developers have steered clear of the sector since 2012-13, forcing the highways ministry to put on hold plans to build highways through the public private partnership (PPP) route. This financial year, only two PPP projects have received bids.

After the policy was notified, developers had informed the government that in its current form, it had failed to address the issue of unlocking of equity in healthy, operational projects that could release about .`6,000 crore of equity in older concessions as well as the potential of serious, long-term foreign direct investment into the road sector. They had pointed out that there were a large number of legal, commercial and taxation challenges involved which investors and sellers would not be willing or prepared to deal with.

Officials in the highways ministry said they would try to resolve the matter with the department for economic affairs and take a call on how to bring the changes into the policy soon.